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Abstract:This paper analyzes optimal monetary policy in a sticky price model with Calvo-type staggered price-setting. In the paper, the optimal monetary policy maximizes the expected utility of a representative household without having to rely on a set of linearly approximated equilibrium conditions, given the distortions associated with the staggered price-setting. It shows that the complete stabilization of the price level is optimal in the absence of initial price dispersion, while optimal inflation targets respond to changes in the level of relative price distortion in the presence of initial price dispersion.

FiveThirtyEight covered the ongoing debate over teacher evaluation, citing two companion papers that appeared together in the September 2014 issue of the American Economic Review. In "Measuring the Impacts of Teachers" I and II the authors construct "value-added" estimates for teachers in a large urban school district by observing how students' test scores change from year to year as they pass through each teacher's classroom. They find that their teacher value-added scores are not significantly biased and are potent predictors of students' later-life outcomes.

Wonkblog covered an article published this month in the American Economic Journal: Applied Economics. In Saving Lives at Birth: The Impact of Home Births on Infant Outcomes the authors study a sample of over 300,000 Dutch women and find that home birth increases the risk of newborn mortality, especially for low-income women, likely because of reduced access to medical technologies after delivery.

A Wall Street Journalanalysis of potential merger activity in the health insurance industry cited a study published in the American Economic Review. In "Paying a Premium on Your Premium? Consolidation in the US Health Insurance Industry," the authors found that a 1999 merger between two large U.S. health insurers drove up customer premiums and depressed doctors' earnings in certain parts of the country.